The effects of EMU on Finland
MEP Esko Seppänen in Tallinn 20.10.2001
Finland has participated in the European economic and monetary
union (EMU) from the outset of its Stage Three. At the same
time, the value of the Finnish Mark was irrevocably fixed
to the value of the other EMU countries’ currencies and of
the EURO. Finland lost its possibility to pursue its own monetary
policies: its own foreign exchange policy and its own interest
rate policy.
From the beginning of the year 2002, the Finnish Mark will
be replaced by the common currency of the European union:
EURO. It will be administrated in a supranational manner.
EURO is a federal currency.
The European Central Bank (ECB) holds the monopoly over
monetary policy. The national central banks of the member
states are its branches, lacking independence.
The Executive Board of ECB has six members. From the beginning,
one of them has been a Finn (Ms Sirkka Hämäläinen) but after
her term finishes in 2003, Finland is not going to get a new
board member to replace her for decades. Then monetary policy
will be enforced on us from outside, by foreign decision-makers.
If monetary policy is not pursued nationally and if adaptation
measures are needed in case the economical conjuncture would
change, national flexibility has to be implemented through
finance policy (state budget) or labour market (flexibility
of wages).
The Executive Board of ECB, together with the governors
of the national banks (i.e. the branches of ECB) of the member
states, constitute the Governing Council consisting of 18
members. It is the highest supervisory organ of ECB. It is
in no way controlled by governments or parliaments, the bank
is controlling itself. So it has been guaranteed a total sovereignty,
which in turn has been deprived of the monetary policy decision-makers
of the member states. The problem of democratic deficit is
obvious.
The European Central Bank is a one cause movement as its
only operational target is a fight against inflation. The
fight is going on even without inflation. Some governments
have – with France in the lead – made claims that a council
should be established in the context of ECB, which could practise
economic policy also in other ways than just fighting inflation.
The functioning principles of ECB have been copied from the
Bundesbank.
In order to gain credibility, the Germans made the others
accept, in the context of the Maastricht Treaty, specific
EMU criteria, which the coming EMU countries had to fulfil
in advance. These criteria concerned inflation, public budget
deficits and incurring of a debt. In the economic situation
of the late 1990’s, the requirements were causing deflation,
and they did not enable the governments to act against unemployment.
Moreover, they were thoroughly political, as for instance
in case of Belgium and Italy, they were not adhered to in
the end.
At the Dublin summit, the Germans got through their demand
concerning a so called Stability Pact. It created a special
sanction system for the countries, which do not fulfil certain
EMU criteria. The system became a deterrent to the member
countries, which do not have a serious enough attitude towards
this finance political discipline. On the basis of this pact,
the Ministers of Finance of the EMU states have warned Ireland
for its slack budget discipline. The German economy is perhaps
the next on the line failing to fulfil the stabilisation criteria.
The system is going to creak, when it will be weighed whether
the other member states have the power and political will
to make the German government the same demands as in case
of Ireland.
Classical functions of money
The use of the Euro money as a measure of value is not very
problematic. For those who are incapable of mental calculation,
there are calculators and with a few presses on buttons it
is easy to find out the value of property, goods and services,
both historical and present, both in old and new currency.
The introduction of new currency as means of payment is
carried out by changing all circulating money into EURO’s.
That will cause costs which will mainly be paid by private
citizens. Currency exchange, new pricing of goods and services
and the renewal of all automatons will cost Finland billions
of Marks.
At the same time, various prices will be rounded. That is
done upwards, and also in this way the transfer into EURO
will be paid by the consumers. We have seen in Finland that
already before the transfer, a part of the price rises have
been realised to correspond to even sums in EURO’s.
To replace one currency with another is not a unique event.
For instance, in Estonia the introduction of its own currency
has been realised without major problems. The transfer to
EURO is probably not an impossible task, although it is the
biggest money exchange operation in the world. At first there
will be difficulties due to inexperience, but that will heal
in time.
In the connection of the new money launching there will,
without doubt, occur criminality. When people do not recognise
right money, they may be offered wrong one. Money counterfeiters
have been able to steal press and security material meant
for genuine EURO currency. The currency change will also bring
into the daylight all the grey and black money, which at present
is, tied to the currencies of the EMU states. This kind of
money is abundant also in Russia and other third countries.
From the beginning of next year it will be worthless, and
criminal circles have been hoarding Dollars. That has weakened
the value of EURO in proportion to Dollar and increased the
devaluing of EURO.
The biggest problem with EURO is not the introduction of
a new currency as means of payment. It is the fact that EURO
is primarily political currency, which is administered according
to the interests of the big countries.
Finland was obliged to join EMU
Finland joined EMU because it had to. When it joined the
European Union, Finland committed to accept the Maastricht
Treaty with EMU recorded in it. Finland made no reservations
concerning it, nor did Sweden, but Great Britain had included
this reservation in the Maastricht Treaty. During the membership
negotiations, Finland was tied to EMU and Sweden, too, but
Sweden’s case shows that no country can be forced to give
up its own currency, a symbol of its national sovereignty.
The Finnish people were not told the truth of what kind
of commitment the political leadership had made in the membership
negotiations. Before the EU referendum in Finland, it was
told that a separate decision on EMU would be made and that
the fate of our own currency would not be decided in the context
of the referendum concerning the EU membership. When the membership
in EMU became current, the political elite started telling
that the decision on EMU had already been made, in the referendum.
Many citizens felt that they had been cheated.
So far the economical consequences of EMU have been slight.
One reason is that Mark, in three years´ time, has been devaluated
by a quarter in regard to the US Dollar. Before joining the
EMU, the people were told that it would provide a possibility
for an inflation-prone national economy to get out of the
so called devaluation-inflation circle. When EMU currencies
have devaluated in respect to the US Dollar, just the opposite
has happened.
Devaluation has had a positive impact on the competitiveness
of Finnish enterprises. Export has increased and foreign debt
has decreased. Firms have been paying record high dividends
to their owners, and besides profits, old assets of the companies
have been distributed to the owners. It looks like that after
joining EMU, an American-originated share holder value concept
was launched in Finland, according to which a firm’s present
owners are entitled to all the money that can be raised from
the firm and shared out.
The revaluation of the US Dollar in respect to EURO has had
a remarkable influence on the Finnish stock market. In terms
of US Dollars, the value of the Finnish stock exchange has
been low, and as a consequence, some 70 % of the stocks have
ended up to foreign ownership. This has resulted in the escape
of economic power away from Finland.
As the consequence of the selling out of stock, foreign currency
has flown to Finland, distorting the internal distribution
of income , and income disparity has become bigger than ever
before. Dividends have been tax-free to their receivers, and
in addition, sales profits have been tax-free or under-taxed.
At the same time, Finland has by political decisions reduced
its national debt. The debt dates back to the end of 1980’s,
when the country was implementing erroneous monetary policy
(so called Strong Mark Policy), as the target to get Finland
to be trimmed into EU condition. Under the pretext of payment
of debt, social security benefits have been cut down, but
at the same time the rich and those with high income have
been given tax relieves.
As money from dividends and sales profits was not distributed
through taxation to those Finns who are dependent on social
security, in the middle of all new-richness, Finland has experienced
bread lines with hungry people seeking food offered by voluntary
organisations.
EMU is federalism
All in all, Finland’s membership in EMU must be studied in
the light of the ideology that is represented especially by
the broadly-based government and its Social democratic Prime
Minister Paavo Lipponen.
Lipponen has led Finland away from its former foreign political
neutrality. Finland has common foreign, security and defence
policy with the EU and NATO countries. Finland is prepared
to give up its independence and become a state in a federation
with supranational decision-making: political decisions are
made depending on the size of population of each state.
EMU is a part of the federalist project of the European
Social democrats: EU is being turned into a federal state.
The NATO project is connected to it. When EU is being militarised
and permanent military organs and a Euro army are placed in
its disposal, Finland and the other non-allied countries are
made compatible both politically and militarily through the
EU structures to the NATO structures.
The Finns have not been asked whether they want to belong
to a federal state. At least they do not want to join NATO:
in the latest opinion polls only 17 % of the Finns are in
favour of NATO membership.
The biggest problem from the point of view of a small country
is the lack of democracy in the federal state and weakening
of democracy on a national level. That is what EMU represents.
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